Core views:
Q1 High increase in performance, mainly due to changes in product structure and base volume. The company announced a preliminary increase in performance for the first quarter. It is estimated that Q1 will achieve net profit of 923-1,046 million yuan, an increase of 50%-70% over the previous year; after deducting non-net profit of 583-706 million yuan, an increase of 186%-246% over the previous year. The high increase in the company's profit is mainly due to changes in the delivery product structure (we expect that mainly trains that won the bid at the end of last year are in the delivery period, and the share of railway equipment with higher gross profit will increase), while the 23Q1 profit base is relatively low.
It is expected that further flexibility will be maintained throughout the year, and the peak bidding season is about to begin. Vehicle sales of motor vehicles, buses, and locomotives plus advanced motor vehicle repair have become the company's main contributor to flexibility. Driven by increased passenger flow pressure+equipment renewal policy+vehicle aging, we believe that the average annual growth rate of all of the above businesses is expected to reach more than 20%. Considering that China Railway Group is expected to issue a batch of new tenders in April-May, the company's deliveries and orders are expected to remain full this year.
Domestic demand improvement+equipment renewal are combined, and state-owned enterprise reform+dividend asset attributes coexist. With the recovery of investment in the rail transit industry+the arrival of the overhaul cycle+equipment replacement volume, CRRC's profit slope center is expected to rise and enter a channel of accelerated growth. As a state-owned enterprise, the company continues to push forward reforms to reduce costs and increase efficiency, and its willingness to manage market value is expected to increase. It has maintained a high dividend rate over the years, and the dividend asset attributes are obvious.
Profit forecasting and investment advice. The company has a logic of domestic demand improvement+equipment renewal, and has the attributes of state-owned enterprise reform+dividend assets. Profit margins are expected to increase under changes in the business structure. We expect the company's net profit to reach 135/151/168 billion yuan in 24-26. Referring to comparable company valuations and the company's historical valuation center, considering that many of the company's businesses have the potential to release greater profit flexibility in the future, the company was given a PE valuation of 18x in 2024, corresponding to a reasonable value of 8.42 yuan/share for A shares; considering the AH share premium factor, corresponding to a reasonable value of HK$5.07 per share for H shares, they were all given a “buy” rating.
Risk warning. Market competition increases risks, investment in the rail transit industry falls short of expectations, risks of overseas operations, and risk of exchange rate fluctuations.